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What is How Tax Affects On Market Participants?

How tax affects onmarket participantsdepend on numbers of factors together. In fact, more than one factor controls the impact of taxes on themarket participants. It is understandable that the impact of taxation would not be same for both the producers or sellers and the buyers. The factors such assubsidy impactandeffect of elasticitycount much when it comes to affect themarket participants.

Impact Of Tax

A marginal tax on the producers or the sellers of a good will shift the supply curve to the left direction until the vertical distance between the two supply curves is to the per unit tax. When the other factors remain equal, this would increase the price paid by the consumers that is almost equal to the new marker price and decrease the price received by the sellers.

On the other hand, a marginal tax on consumption would shift the demand curve to the left, when other things remain equal, this would increase the price paid by the consumers and decrease the price received by sellers by the same amount, as if the tax had been imposed on the sellers. However, in this case, the price obtained by the sellers would the new market price. The outcome is that, irrespective of the fact that is being taxed, the price sellers will receive will decrease and the price consumer pay will increase.

Impact Of Subsidy

How tax affects onmarket participantsdepend largely on thesubsidy impact. Marginal subsidies on production will shift the supply curve to the right until the vertical distance between the two supply curves is equal to the per unit subsidy. When other things remain equal, this would decrease price paid by the consumers, which is equal to the new market price and increase the price received by the producers. Similarly, a marginalsubsidy on consumptionwould shift the demand curve towards right. When other factors remain equal, this would decrease the price paid by the consumers and increase the price received by producers by the same amount as if the subsidy had been granted to producers. However, in the case, the new market price would be the price received by producers. The outcome is that the lower price that consumers pay and the higher price that the producers receive would be the same, regardless of how the subsidy is administered.

Effect Of Elasticity

Depending on the price elasticity of demand and supply, how tax affects onmarket participantsreceive an explanation. This also controls who has to pay more tax and who receives more of the subsidies.Effect of elasticitycontrols tax onmarket participantsto a major extent. where the supply curve is more inelastic than the demand curve, producers need to bear more or the tax and receive more of the subsidies than the consumers, as the dissimilarity between the price producers receive and the initial market price is greater than the difference borne by consumers. Where the demand curve is more inelastic than thesupply curve, the consumers need to pay more tax and receive more of the subsidies as the difference between the price consumers pay ad the initial market price is greater than the difference borne by producers.

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